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Fixer-Upper Loans - Q & A
| Q: |
Are there
gov't programs for rehab? |
| A: |
The
U.S. Department of Housing and Urban Development's Section 203 (K)
rehabilitation loan program is designed to facilitate major structural
rehabilitation of houses with one to four units that are more than one
year old. Condominiums are not eligible.
The 203(K) loan is usually done as a combination loan to purchase a
fixer-upper property "as is" and rehabilitate it, or to
refinance a temporary loan to buy the property and do the
rehabilitation. It can also be done as a rehabilitation-only loan.
Plans and specifications for the proposed work must be submitted for
architectural review and cost estimation. Mortgage proceeds are advanced
periodically during the rehabilitation period to finance the
construction costs.
For a list of participating lenders, call HUD at (202) 708-2720.
If you are a veteran, loans from the U.S. Department of Veterans
Affairs also can be used to buy a home, build a home, improve a home or
to refinance an existing loan. VA loans frequently offer lower interest
rates than ordinarily available with other kinds of loans. To qualify
for a loan, the first step is to apply for a Certificate of Eligibility.
Another program is the Fedeal Housing Administration's Title 1 FHA
loan program.
Resources:
* "Rehab a Home With HUD's 203(K)" brochure, U.S. Department
of Housing and Urban Development, 7th and D streets S.W., Washington, DC
20410.
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| Q: |
Can you
deduct the cost of home improvements? |
| A: |
What
you spend on permanent home improvements, such as new windows, can be
added into your home's cost basis, or amount of money invested in a
home, which reduces capital gains when it comes time to sell. Capital
gains are determined by the difference in price from the time a home is
purchased and the time it is sold, minus the cost of any permanent
improvements.
However, the 1997 tax changes virtually eliminates the capital gains
tax for most homeowners (the exemption is $250,000 for single homeowners
and $500,000 for married homeowners.).
Still, it is worthwhile to save all receipts for permanent home
improvements just in case. They also can be useful documentation when it
comes to marketing your home when you sell.
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| Q: |
How do
building codes work? |
| A: |
Building
codes are established by local authorities to set out minimum
public-safety standards for building design, construction, quality, use
and occupancy, location and maintenance. There are specialized codes for
plumbing, electrical and fire, which usually involve separate
inspections and inspectors.
All buildings must be issued a building permit and a certificate of
occupancy before it can be used. During construction, housing inspectors
must make checks at key points. Codes are usually enforced by denying
permits, occupancy certificates and by imposing fines.
Building codes also cover most remodeling projects. If you are buying
a house that has been significantly remodeled, ask for proof of the
permits involved before you purchase to avoid future liability for
fines.
Resources:
* "The Ultimate Language of Real Estate," John Reilly,
Dearborn Financial Publishing, Chicago; 1993.
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| Q: |
Are there
any special tax breaks for historic rehab? |
| A: |
Qualified
rehabilitated buildings and certified historic structures currently
enjoy a 20 percent investment tax credit for qualified rehabilitation
expenses. A historic structure is one listed in the National Register of
Historic Places or so designated by an appropriate state or local
historic district also certified by the government.
The tax code does not allow deductions for the demolition or
significant alternation of a historic structure.
Resources:
* National Trust for Historic Preservation, Washington, D.C.; (202)
588-6000.
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Copyright 1999 Inman News Features
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